SUBJECT: APPROVAL OF BUSINESS TERMS FOR AN
ACQUISITION/ PREDEVELOPMENT LOAN, CONDITIONAL LOAN AND FUND RESERVATION TO
CHARITIES HOUSING DEVELOPMENT CORPORATION, OR ITS DESIGNATED AFFILIATE FOR THE
DEVELOPMENT OF THE PROPOSED HOMESAFE-SAN JOSE APARTMENTS
COUNCIL DISTRICT: 5
RECOMMENDATION
It is recommended that the City Council adopt a resolution approving business terms for:
1. An
acquisition/predevelopment loan of up to $1,230,478.00 and a conditional loan
of up to $750,000 to Charities Housing Development Corporation (CHDC), or its
designated affiliate for the development of the 25-unit HomeSafe-San Jose
housing project affordable to extremely low-income households.
2. Approving an additional fund reservation of up to $2,519,522 for construction financing for the project.
On March 28, 2001, CHDC completed its application to the Housing Department for the development of a 25-unit housing project consisting of four studio units and twenty one-bedroom units affordable to extremely low-income households and one unrestricted two-bedroom manager’s unit. The sponsor is seeking City financing to purchase the site and finance predevelopment costs in the short term, and additional funding for construction at a later date.
A City commitment of funding is necessary at the present time to purchase the land by the June 15, 2001 deadline required in the purchase agreement, and to provide additional predevelopment funding.
The
proposed project will be constructed on a 1.09-acre site located on the
southerly terminus of Kentucky Place,
south of Alum Rock Avenue. The land
purchase price of $1,400,000 was determined by the sponsor using recent values
found in appraisals of nearby property at the time that the sponsor entered
into a purchase contract in May 2000.
An appraisal ordered by the sponsor, which is due to be completed by
June 6, 2001, is expected to confirm that this is an appropriate purchase
price.
The sponsor will be seeking permanent financing for the project from the 9% Low-Income Housing Tax Credit (LIHTC) program. The sponsor will apply for a 9% tax credit allocation on June 15, 2001.
The sponsor intends to utilize City funds for the acquisition of the land, predevelopment costs and construction financing. The Housing Department is recommending that the City provide financing of approximately $1,400,000 for land acquisition and approximately $580,478 for anticipated predevelopment expenses. Staff is also recommending an additional fund reservation of up to $2,519,522 for construction costs. When the sponsor secures construction and permanent financing commitments, staff will return to the City Council for approval of construction financing terms.
For the City’s construction loan, the Housing Department currently anticipates that the City will provide total financing of $4,500,000, of which $3,750,000 will consist of a loan ($2,250,000 from HOME and $1,500,000 from the Housing Department’s 20% Funds) and the remaining $750,000 will consist of a conditional loan from the Redevelopment Agency’s 20% Supplement Funds to the Housing Department to subsidize extremely low-income (ELI) units. Once the project is completed, the Housing Department anticipates repayment of the $1,500,000 of 20% Funds from other sources of funding the sponsor will be applying for (tax credits, state funds and contributions).
Since the property is located in the Alum Rock Avenue Redevelopment Project Area, 15% of the units in the development must be restricted to moderate- and very low-income households. It is City Council policy that the City loan not subsidize these 15% inclusionary housing units. The sponsor will be subsidizing the inclusionary units through a mix of other lender financing and equity funding.
In accordance
with the Replacement Housing Plan, Downtown Development Projects, adopted by
the Redevelopment Agency Board in January 2000 and the Replacement Housing
Plan, Hellyer-Piercy Improvement District, adopted by the Redevelopment Agency
Board in February 2001 ("Plans"), the 24 units affordable to
extremely low-income households to be constructed as a part this development
are to be designated as available to satisfy the Agency's Replacement Housing
obligation as described in the Plans.
The attached
fact sheets detail the proposed business terms for the City’s acquisition and
predevelopment loan.
RELOCATION
The site is
occupied by six small businesses, which rent the site as a storage facility for
their materials. The sponsor hired a
consultant, Crossroads Relocation R/W, which is completing a relocation plan
that will meet the City’s relocation obligation as required by federal and
State Law. Based on the consultant’s
analysis, the relocation estimate is $20,000.00
PUBLIC OUTREACH
On April 9, 2001, the project sponsor held a community meeting at the Eastside Neighborhood Center. Members of the City Planning Department and a representative from the Council District were among the attendees. PD rezoning is agendized for Planning Commission consideration on May 23, 2001.
COORDINATION
Preparation of this memorandum was coordinated with the Office of the City Attorney and the Department of Planning and Building and Code Enforcement.
COST IMPLICATIONS
Funds for the project are available from the HOME Investment Partnership Act and Low- and Moderate-Income Housing Fund in the Housing Department’s Fiscal Year 2000-2001 budget and from the Redevelopment Agency’s 20% Supplement Funds to the Housing Department for the ELI units.
Under the HOME federal funding requirements and the National Environmental Policy Act (NEPA), an Environmental Assessment (EA) report was completed and a public notice of Finding of No Significant Impact (FONSI) and Notice of Intent to Request Release of Funds (RROF) was published on May 13, 2001. The 30-day citizen participation process, which will allow the public to review and comment on the EA is expected to be completed by June 11, 2001.
LESLYE CORSIGLIA
Acting Director of Housing
HomeSafe-San Jose Apartments
Fact Sheet
Development Team
Developer: CHDC, or its designated affiliate
Architect: Studio E Architects
Contractor: To be determined
Property Manager: InnVision
Project Location: Southerly terminus of Kentucky Place, south of Alum Rock Avenue
Acreage: 1.09 acres
Council District: 5
Project Type: Family Rental
Group Served: Extremely low-income women and children
Number of Units: 24 extremely low-income and 1 unrestricted manager’s unit
Bedroom Mix and
Monthly Rent: STUDIO 1
BR 2
BR____
ELI (30% AMI) 4 @ $430 20 @ $450
Unrestricted 1 Mgr Unit
Other Amenities: Elevators, furnished community room, TV room, lounge, exercise room.
Estimated Total Project Cost: $7,055,316
Estimated Cost Per Unit: $282,213
Anticipated City Subsidy
at Permanent Loan: up to $2,250,000
Anticipated City Subsidy
per Unit at Permanent Loan: $150,000 (excluding 15% inclusionary units)
Anticipated Subsidy for
Conditional Loan: $750,000
Anticipated Subsidy per Unit
For Conditional Loan: $150,000
Anticipated Leverage Per Unit
at Permanent Loan: 1.35 to 1
Anticipated Leverage Per Unit
For Conditional Loan: 1.35 to 1
Land Appraised Value: Expected to be less than $1,400,000; to be confirmed by an appraisal prepared by CB Ellis Richard, Inc. due June 6, 2001.
Conditional Loan Amount: $750,000
Term: 55 Years, or End of Term of Affordability restrictions
Interest Rate: Zero-Interest
Security: Recorded Second Deed of Trust
Repayment: No repayment required if property remains in compliance with the 55-year affordability restrictions
Loan to Value: Less than 141%
Affordability Restrictions: 55-Year Affordability Restrictions for 24 extremely low-income units to be recorded on the property at the time of acquisition, and may be subordinated as permitted by State law (includes 4 ELI units required by redevelopment inclusionary requirement).
Acquisition/Predevelopment
Loan Amount: $1,230,478
Term: 24 months
Interest Rate: 2% simple
Security: Recorded First Deed of Trust
Repayment: Proposed City Construction Loan
Loan to
Value: Less
than 88%
Recourse: The City’s Acquisition/Predevelopment loan will be recourse.
Subordination: As allowed by State law
Affordability Restrictions: 55-year Affordability Restrictions for 24 of the units to be recorded on the entire property at the time of acquisition, and may be subordinated as permitted by State law (includes 4 ELI units required by redevelopment inclusionary requirement).
Conditions:
1. At the time of closing of the City's Acquisition/Predevelopment loan and the Conditional Loan for this project, no default is present under any loan documents executed by CHDC or any of its affiliates.
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Acquisition/Predevelopment Loan Agreement and Conditional Loan Agreement between the City and the Borrower.
3.
The City’s
future permanent loan commitment shall be contingent on the Borrower’s ability
to maximize all available financing sources, i.e., senior permanent loan,
grants and tax credits.
4. At the end of the term of the 55-year Affordability Restrictions, at which time the Restrictions are still in effect and the Borrower is in compliance with the Restrictions, the Conditional Loan shall convert to a grant effective on the expiration date of the Restrictions.
5.
Borrower
shall submit an application to the State of California Tax Credit Allocation
Committee (TCAC) for the June 15, 2001 funding round .
6.
In the
event the project does not receive a 9% tax credit allocation from TCAC, the
Borrower must provide an alternative financing structure that is acceptable to
the Housing Department.
7.
Borrower
shall submit a relocation plan acceptable to City prior to closing the City’s
Acquisition/Predevelopment Loan and the Conditional Loan.
8.
Receipt of
an appraisal acceptable to the Housing Department which supports $1,400,000
acquisition price.
1. No adverse public comments on the RROF are received by 5:00 on June 11, 2001.
Planning Issues
GP Designation: General Commercial
PD Rezoning Status: June 5, 2001
PD Permit Status Pending
Building Permits: Pending
Article XXXIV Status: Authority from Measure D (1994) is available
Toxics Issues: Phase I Environmental Site Assessment was completed on June 16, 2000 by Terrasearch, Inc. The report recommends that further environmental assessment is warranted and should include soil sampling for presence of petroleum hydrocarbons. A Phase II completed on May 12, 2000 by Terrasearch, Inc. revealed that the presence of petroleum hydrocarbons is limited to the soil surface level which impacted the groundwater by low levels of oil and grease, considered below action levels.
On March 28, 2001, William Dubovsky completed the site remediation which
consisted of removal of hydrocarbon and lead impacted soil.
Estimated Project Development Timeline
June 5, 2001 Anticipated PD Rezoning Approval
June 12, 2001 Anticipated City Council Approval of Business Terms for an Acquisition/Predevelopment Loan and Conditional Loan
June 13, 2001 Anticipated Close of Acquisition/Predevelopment Loan and Conditional Loan
June 15, 2001 Anticipated Application for 9% Tax Credits
December 2001 Anticipated Close of City Construction Loan
January 2002 Anticipated Start of Construction
March 2003 Anticipated Completion of Construction